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It has never made sense to hold on to cash, and it has absolutely nothing to do with QE. Read Keynes' theory of demand for money.

by lottin 6y ago

adventured 6y ago
Cash is what you want to be sitting on when discounted opportunities abound. The people that lack cash at such critical times, suffer enormously for that error. How nice was it to have plentiful cash after the real-estate implosion? They were practically giving homes and condos away in markets like Nevada or Florida, condos that were going for $250,000 during the bubble were being given away for $35k-$50k at the bottom of the implosion and there were few takers, entire buildings were sitting empty in formerly hot markets in Florida. How nice was it to have a lot of opportunity cash at the ready as the S&P 500 collapsed in late 2008 / early 2009 (or March 2020 for that matter), while everybody else was getting mauled, worried about margin calls, fleeing the market in fear. You wanted to be buying from those people as they were dumping nice assets for $0.25 on the dollar. To do that you needed cash on hand. The time period after steep asset declines or crashes, is when the majority of investors lack for cash the most, they're always pinned, scared by the hits they took, and can't seize the opportunities that become available; and that's when you make the biggest killing, that's when you take up your greatest potential return positions, not during rah rah times (that's when you cash out your prior opportunistic positioning and build cash, rinse & repeat). That's not to suggest you should always be holding nothing but cash, that isn't the point. The notion that it never makes sense to hold cash is way off the mark however. At a minimum you want some opportunity cash on hand at nearly all times, and you can increase or decrease how much that is depending on the context of the economy/market/personal/etc.

It has never made sense to hold on to cash, and it has absolutely nothing to do with QE. Read Keynes' theory of demand for money.

by lottin 6y ago

It has never made sense to hold on to cash, and it has absolutely nothing to do with QE. Read Keynes' theory of demand for money.

adventured 6y ago

Cash is what you want to be sitting on when discounted opportunities abound. The people that lack cash at such critical times, suffer enormously for that error. How nice was it to have plentiful cash after the real-estate implosion? They were practically giving homes and condos away in markets like Nevada or Florida, condos that were going for $250,000 during the bubble were being given away for $35k-$50k at the bottom of the implosion and there were few takers, entire buildings were sitting empty in formerly hot markets in Florida. How nice was it to have a lot of opportunity cash at the ready as the S&P 500 collapsed in late 2008 / early 2009 (or March 2020 for that matter), while everybody else was getting mauled, worried about margin calls, fleeing the market in fear. You wanted to be buying from those people as they were dumping nice assets for $0.25 on the dollar. To do that you needed cash on hand. The time period after steep asset declines or crashes, is when the majority of investors lack for cash the most, they're always pinned, scared by the hits they took, and can't seize the opportunities that become available; and that's when you make the biggest killing, that's when you take up your greatest potential return positions, not during rah rah times (that's when you cash out your prior opportunistic positioning and build cash, rinse & repeat). That's not to suggest you should always be holding nothing but cash, that isn't the point. The notion that it never makes sense to hold cash is way off the mark however. At a minimum you want some opportunity cash on hand at nearly all times, and you can increase or decrease how much that is depending on the context of the economy/market/personal/etc.